Cheat Sheet: Managing the litigation risk of unpaid interns

Summer is approaching, which means it’s nearly peak season for popsicles, sundresses and summer interns. But the joy some companies felt at bringing in these little helpers in the past is somewhat tempered now by the spate of high-profile lawsuits brought against employers by unpaid interns. In InsideCounsel’s May issue, we looked at the risk companies face when running an internship program, and how to stay out of the courtroom. Here we’ll break it down and provide answers to in-house counsels’ key questions about unpaid interns.

What’s the danger?

In 2010, the Department of Labor issued a fact sheet explaining how employers can run unpaid internship programs without running afoul of the Fair Labor Standards Act (FLSA), which states that employers must pay employees at least minimum wage. The criteria for an acceptable unpaid internship program require it to be designed for the benefit of the intern, not the company. And an intern who just does unpaid work with no educational element is definitely benefitting the company.

Former interns at employers such as Fox Searchlight and Hearst Corp. claimed that the programs they participated in violated the FLSA, and though a judge recently denied the Hearst interns class action status, the issue should still be on employers’ radar.

Who are the targets?

Though large media companies like Hearst have gotten a lot of publicity, cases have also cropped up against employers, large and small, in other industries. Elite Model Management, a New York modeling agency, and Hamilton College have both faced similar suits.

That’s better, but you still may not be safe. Though the 11th Circuit in Kaplan v. Code Blue Coding and Billing found that students who completed externships required for graduation could not sue for wages, offering academic credit doesn’t necessarily absolve you from future litigation.

“If the school is willing to give credit without overseeing what actually happens during the internship, they don’t know if the person is participating in classroom instruction or cleaning the restrooms,” says John Thompson, a partner at Fisher & Phillips.

How should companies set up internship programs?

You have three options, really. You can set up an unpaid internship program, do your best to comply with FLSA requirements, work closely with the institution offering academic credit and hope for the best. You can decide it’s not worth it and scrap the program completely, which Fisher & Phillips Partner John Thompson says many companies are doing.

Or, you can suck it up and pay your interns. “Unless you are really, really sure your intern program would pass muster, just go ahead and pay minimum wage and overtime,” says Poyner Spruill Partner David Woodard. “That’s the safest thing to do.”